From CNBC & Forbes:
· Fabricated accounting at Luckin Coffee led to a 75% decline in the Chinese company’s stock on Thursday.
An investigation that found a preliminary $314 million of accounting fraud at money-losing Chinese coffee chain Luckin Coffee triggered a 76% collapse of its Nasdaq-traded shares yesterday, wiped out of billions of dollars of shareholder wealth, and pushed chairman Charles Zhengyao Lu out of the ranks the world’s billionaire ranks.
· Luckin’s chief operating officer stands accused of fabricating 2019 sales.
More than a decade ago, hundreds of Chinese companies went public in the U.S. via reverse mergers, merging into public but mostly dormant U.S. companies. Many turned out to be frauds — so many that a movie, “The China Hustle,” was made about the whole wild affair. Notable Chinese cases in recent years have involved Sino Forest, Longwei Petroleum, China Media Express and Puda Coal.
Fast forward to today, and one particularly weak point stands out: auditing procedures. Securities and Exchange Commission Chairman Jay Clayton and William Duhnke III, chairman of the Public Company Accounting Oversight Board, have often noted that U.S. regulators are prevented from inspecting audit work and practices of audit firms in China. They have called for more cooperation from China, to no avail.
The Sarbanes-Oxley Act of 2002 established the PCAOB. It required that every domestic and foreign accounting firm that issues audit reports for companies that report to the SEC register with the board.
Over time, the PCAOB negotiated agreements with foreign counterparts that allowed them to perform audit inspections.
Clayton and Duhnke issued a joint statement in December 2018 noting that the board had entered into cooperative agreements with 23 foreign regulators that allow them to conduct either joint inspections or share inspection findings with regulators in those jurisdictions.
China, however, is one of the few countries that has not been cooperating with the board.
Accounting Fraud, Chinese Accounting Fraud, Chinese Fraud, Cooking the Books, fraud, Luckin Coffee, Luckin Coffee Fraud